Australian fiscal federalism is clearly defined by two distinguishing features: (1) the extent of vertical fiscal imbalance within the federation, and (2) a detailed and comprehensive approach to horizontal fiscal equalization, which guides the distribution of funding transfers between the federal, or Commonwealth, government and the states and territories. While the origins of fiscal federalism in Australia go back to the founding of the federation and the Constitution enacted at that time, these two features owe much more to the historical evolution of practice than they do to the original principles of the Constitution.

The Australian Constitution does not differ...

In 1994, Brazil adopted a monetary stabilization plan that not only ended an era of high inflation, but also had a profound effect on federal finances. A newly stable currency brought structural imbalances to light and forced public administrators to come to terms with their accounts. In the fairly decentralized Brazilian federation, the enforcement of fiscal discipline required important institutional changes. A “fiscal discipline” law, enacted in 2000, imposed limits on personnel expenses and on the level of state and local government indebtedness. At the same time, hard budgetary constraints imposed by the macroeconomic goals of price stabilization impinged on...

For many observers, Canada epitomizes the classical system of fiscal federalism. Autonomous provincial governments are responsible for the provision of many important public services. They enjoy unfettered access to all the major tax sources and are responsible for raising a high proportion of their own revenues. Federal transfers to the provinces are fairly non-intrusive. The two main forms of transfers - unconditional equalization transfers and equal per capita bloc transfers to support provincial social programs - facilitate effective decentralized decision making by ensuring that provinces have comparable capacities for delivering important public services and by encouraging them to provide health,...

In theory, the German federal system is a cooperative one, but in practice, a lack of cooperation between the federal government and its constituent units has led to an impasse. The spending authority of Germany’s 16 constituent units, theLänder,is restricted by federal mandates, and most legislation at the federal order requires the consent of theLänderin the upper chamber of parliament, theBundesrat. This has allowed theLänderto acquire a veto on federal government legislation and has restricted the ability of the federal government to pursue its own policies. The veto power of theBundesratis...

The system of intergovernmental fiscal arrangements in India has served it well for over 50 years. It has achieved a significant equalization of services, instituted a workable system of resolving the outstanding issues between the national government - called the “Centre” in India - and the states, adjusted to changing requirements, and thus has contributed to achieving a degree of cohesiveness in a large and diverse country. While reflection brings up several areas in need of reform, the most enduring point is that such reform is eminently possible.

The tax powers and expenditure responsibilities of the Centre and states are...

Although the Federal Constitution of Malaysia assigns clear responsibilities to the federal, state, and local orders of government, the much greater taxation power assigned to the federal government has led to fiscal centralization. The federal government has the power to collect individual income and corporate tax, sales tax, and taxes arising from exports and imports. With little left for each state to raise tax revenues, state governments are further constrained from borrowing by the Constitution and are too dependent on federal grants and loans to undertake increasing expenditures arising from rapid economic growth and urbanization. Tax revenues from fees, licenses,...

Nigeria obtained its independence from Britain in 1960 - and with it, a fiscal federal system that provided a large measure of autonomy to the regions. In the years since independence, Nigeria’s federal structure has undergone many changes. Now there are 36 states, 774 local governments, and a separate Federal Capital Territory (FCT), Abuja, which replaced the old capital of Lagos in 1991. The oil-rich country’s progression toward its current incarnation of fiscal federalism has evolved in a setting of significant economic, political, constitutional, local, and cultural developments.

The level of regional autonomy, which increased up to the time of...

Russia will soon complete the implementation of the program of fiscal federalism it started in 2001. The program promised discipline, a transparent system of intergovernmental fiscal relations, and clearly assigned expenditure responsibilities and revenue sources. While the program is among the few that the Russian government has successfully fulfilled, events in Russia since its onset have led some to question whether it is possible to maintain fiscal federalism in a country increasingly veering away from political federalism. Whatever the answer, one thing is clear: revenue autonomy on the part of constituent units will be a key factor in the success...

South Africa is one of the most recent entrants to the group of nations which have a system of intergovernmental fiscal relations (IGFR). The system was instituted with the advent of democracy in 1994 and is entrenched in the Constitution. South Africa’s IGFR system is the result of political compromise, which was reached following a multi-party negotiation process. The constitutional provision aims to recognise South Africa’s regional, economic, and ethnic diversity, and provide expression to that diversity without undermining the attainment of national unity and the creation of an equitable society.

With a population of 44.8 million people, South Africa’s...

The democratic Constitution of 1978 opened a process of political and fiscal decentralization in Spain which led to the formation of three orders of government - as opposed to the two orders, central and local, operating prior to 1978. With the new Constitution, and thanks to the pressure of leading regions like the Basque Country and Catalonia, 17 “Autonomous Communities,” or states, with legislative and executive powers were created between 1979 and 1983. This gradual process of decentralization, beginning with the Constitution of 1978, has been successful in areas of spending and revenue collection; however, other aspects seem unfinished, specifically...

The Swiss system demonstrates that, in federal countries with the appropriate environment and institutions, it is possible to have sustainable public finances while maintaining a very large degree of fiscal autonomy for the sub-federal units. A reform of the fiscal equalization system which will come into effect in 2008, along with instruments available to encourage fiscal responsibility among the cantons, are a few of the reasons why this is the case.

Switzerland’s cantons have a greater power to tax than constituent units of any other federal country in the world except for some states in the U.S. Swiss income tax...

In practice, the American federal system is a balancing act among three orders of relatively independent governments, federal, state, and local, that have responsibilities for the provision of public services and the power to levy taxes and borrow funds. But only two of those orders are mentioned in the Constitution - the state and the federal. The third, the local governments, have roles largely determined by the states. Within those guidelines, the actual roles and responsibilities of the federal and state governments for public programs are continually changing. This situation leads to periodic conflict between different orders of government. The...

Fiscal federalism is concerned with economic decision making in federal system of government in which public sector decisions are taken at various orders of government. Federal countries differ a great deal in their choices as to the character of fiscal federalism, specifically, how the division of fiscal powers is allocated among various spheres and the associated fiscal arrangements. Further fiscal arrangements resulting from these choices are usually subject to periodic review and redefinition in federal countries to adapt to changing circumstances within and beyond nations. In Canada, such a periodic review (the sunset clause) is mandated by law, whereas in...